Beatrice has prepared a statement of profit or loss for the 12-month reporting period ended 30 June on a cash basis, showing a $64800 profit. The cash-based statement shows the following.

Additional information
• The accounts receivable and accounts payable balances at the start of the reporting period were $24600 and $14700 respectively. At the end of the reporting period, Beatrice had accounts receivable of $31800 and accounts payable of $29640.
• The opening inventory was $48000 and the closing inventory was $57000.
• An advertising invoice of $4440 had not been paid.
• The business has equipment that cost $60600. This has a useful life of five years and an expected salvage value of $6600.
• The insurance expense represents the 12-month premium on a policy that was taken out on 30 April.

Required
(a) Prepare an accrual-based statement of profit or loss for Beatrice for the period ended 30 June.
(b) As a user of financial statements, critique why accrual accounting is preferred to cash accounting to measure financial performance.

Transcribed Image Text:

Sales Inventory purchased Gross profit Expenses Salary and wages Rent Insurance Advertising Administration Interest $416 100 246 000 170 100 42 600 13 800 5 160 8 400 28 200 7140